Medium term oil supply outlook
- The sharp decline in oil prices will have a huge medium term impact on global supply via capex cuts, project deferrals and field declines.
- The supply response will take time to develop.
- Merrill Lynch still project non-OPEC supply growth at approximately 1 million bpd this year.
- Most of the downward adjustment in the short run is likely to come from the US.
- The collapse in prices, coupled with a meaningful increase in volatility, will likely have huge consequences for medium term oil supply for years to come.
- Merrill Lynch estimates total annual oil and gas industry capex slightly below US$800 billion, with the four majors plus Aramco accounting for US$180 billion.
- Outside the US, Canada has been the main driver of non-OPEC supply growth in the last five years, with net additions of 980 000 bpd.
- The Russian Federation may end up losing out over the medium term after the collapse in global oil prices.
- Mexico should end up being a big medium term loser out of the global collapse in oil prices.
- Oil output declines in the North Sea are as predictable as the weather.
- Asian oil production declines will continue across the board.
- The Saudi current account break even oil price sits at approximately US$67/bbl, which would only make it a net external creditor if oil prices rebound sharply.
- Saudi would be facing a current account deficit of 8.5% of GDP if oil averages US$50/bbl this year.
- The fiscal breakeven oil price is US$94/bbl, following the recent stimulus.
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